Download price promotion

yes no Was this document useful for you?
   Thank you for your participation!

* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project

Document related concepts
no text concepts found
Topic: The effect of price promotion
1. Introduction
The ultimate goal of price promotion is to enhance sales and that is the reason
why so businesses adopt price promotion as one of their marketing tools and consider
it is beneficial to them. However, the truth is that not all brands benefit from price
promotions from the result of many studies. This study will be drawn on Dr. Heiner
Evanschitsky’s point of view that price promotions are “ lose-lose” games to businesses
in section two, discussing the definition and propose of price promotions, positive and
negative effects of price promotions on brands and the variables that may affect the
result of price promotions. Based on the data of a variety of studies to know if price
promotion is a useless marketing tool to brands as Dr. Heiner Evanschitsky claimed.
The next section is about the future trend of retailing and its influence on price
promotions. Both Dr. Heiner Evanschitsky and Dr. Sean Ennis consider omni-channel is
the future of retailing. Retailers should make an effort on offering a seamless,
customer-centric and personalized shopping experience for customers on different
platforms. Some retailers (e.g. Amazon Go and Hema supermarkets) have successfully
applied technology in-store to create a unique experience for customers by connecting
the consumers’ mobile phones with in-store tech.
2. Literature Review- price promotion
2.1. Price promotion
Price promotions refers to a short-term reduction of a listed price, and all buyers
have equal access to price reduction (Chen et al., 1998). From the definition of
Raghubir & Kim (1999), it usually increase product value by reducing the price of a
given quantity or increasing the quantity offered at the same price to attract
consumers to buy. When the price of a product is reasonable for the consumer,
consumers perceive more benefits, and in this case, the consumer’s purchase
intention is also high (Lien et al., 2015). As a result, price promotions are used by
retailers to achieve the goal of increasing customers’ purchase intentions and sales
volume (Bambauer-Sachse & Massera, 2015).
However, based on Dr. Heiner Evanschitsky’s study result, the price promotions
cannot boost sales and increase revenues. He explained the circumstance by a few
points (e.g., decreased sales when post-promotion, lower profit margin, increasing
irrelevance of suggested retail price, deterioration of consumer trust), and used the
performance of Asda and ALDI as evidence of the statement. Asda's performance
became worse after price reductions, while ALDI performed promisingly without any
price promotions. In addition, it may also involve the type of product. His research
results showed that the price discount of Haagen-Dazs ice cream benefits its
competitors even more.
According to (Progressive Grocer, 2015), discounts and promotions accounted for
more than 25% of typical consumer goods revenue. Data from other studies indicated
that 99% of retailers are adopting price promotions as their pricing strategy, and most
of them claim that discount pricing is “very effective” (Guinn, 2017). Moreover, it is
often seen that retailers using price discount as a method to attract more buyers and
increase sales in many places (e.g., supermarkets, department stores and restaurants).
Therefore, the findings of Dr. Heiner Evanschitsky surprising and contradictory with
reality, because if the company can not benefit from price promotions, what are their
reasons or motivations for offering discount? Further research on this question will be
discussed below from a variety of perspectives.
2.2. Positive effects and negative effects of price promotion
Although the effects of price promotion have been studied by many researchers,
the results of previous studies were quite different. Some researchers asserted that
price promotions have positive impacts on retailers. First, According to (Gauri et al.,
2017), the key implication was that the price promotions can enhance sales of nonpromoted items by attracting customers to the store. Second, a higher discount rate
could lead to increased attention towards them by shoppers (Gauri et al., 2017). Third,
When manufacturers provide consumer promotions to maximize profits, Sigué's (2008)
and Lin's (2016) argument that the long-term positive effects of promotions are
beneficial to both manufacturers and retailers.
However, other researchers contended that sales promotions have negative
impacts on brands. First, DelVecchio et al. (2006) stated that by lowering the price that
consumers observe for a product, price promotions may lower price expectations,
thereby reducing future brand choices, so retailers should be cautious when offering
price promotions because a detrimental effect on brand preference may be incurred
over time. Second, High “consumer-pull” brands can generate high overall sales by
price promotion but result in lower net profits (Ailawadi et al., 2006). Third, price
promotions can reset consumers' reference prices for frequently purchased brands, so
that they are unwilling to purchase products at the brand's normal or non-discounted
prices (Kalwani & Yim, 1992). Finally, Other studies have found a non-linear
relationship between sales and promotional discounts at the brand or category level,
These findings do not necessarily affect the sales and traffic of the entire store (Briesch
et al., 2002; Pauwels et al., 2007).
Above all, It seems that price promotion do attract shoppers visit retail stores and
increase sales in the certain duration. Nevertheless, price promotion may cause
detrimental effects on brands (e.g., profitability, brand preference, lower perceived
value and lower sales volume post-promotion). The overall perspectives of the studies
above are aligned with Dr. Heiner Evanschitsky’s point of view but why businesses
consider price promotions as an irreplaceable marketing tool is still unknown. In order
to have more insights into the question, variables of price promotion effects will be
looked at in more details in the next section.
2.3. Variables affecting the effects of price promotion
The result of many studies indicated that the results of price promotion could be
affected under different circumstances (e.g., the type of products, the number of
promoted products, the discount rate, the type of price promotion, brand awareness,
brand loyalty and the number of competitors). How these variables affect the results
of price promotions will be explained separately below.
The type of products: Feature discounts on high penetration and high-frequency
items (e.g., meat, ice cream), and low penetration and low-frequency items (e.g.,
beer, coffee and tea) are associated with increased store traffic but discounts are
profitable only for low penetration and low-frequency items (Gauri et al., 2017).
Gauri et al.'s (2017) study also mentioned that, discounts on impulse items in the
store does appear to create increased sales, and is associated with higher margins.
The number of promoted products: Ailawadi et al (2006) pointed out that breadth
If a large number of products are promoted, consumers will find that they have
more choices, which makes them more likely to switch stores.
The discount rate: Large promotions (>20% of the product’s value) were found to
have a detrimental effect on brand preference(DelVecchio et al., 2006). The
results of Kim's (2019) study indicated that a heavy price promotion could have a
positive effect in the short-term, but could have an unintended negative effect in
long-term. When the discount is large, consumers will buy more storable goods,
although these do not turn into profitable spillovers (Ailawadi et al., 2007).
The type of price promotion: Büyükdağ et al. (2020) studied the purchase
intention of customers under different discount scenario (e.g., fixed price, 40%
off, discount from 500TL to 300TL and 20%+25% discount). The study finding
implied customers have the highest purchase intention when discounting from
500TL to 300TL. However, since the data was collected by questionnaire and not
randomly, the actual situation could be not identical to the result of this study.
Brand awareness: DelVecchio et al. (2006) study asserted that sales promotions
are more harmful to unfamiliar brands than to brands customers are familiar with.
The finding of Gauri et al., (2017) study also implied that discounts on branded
items are found to have a stronger impact on sales and higher margin per
transaction than discounts on unbranded items. Another study (Zhu et al., 2019)
suggested that restaurants already have their own competitive advantage in
satisfying consumer demands but without brand awareness in the market should
online price promotion minimally. Nevertheless, it is insightful to understand that
customers’ buying intentions will be affected by the type of discount, and further
research in this area can be done to develop better pricing strategies.
Brand loyalty: From the result of (Zhu et al., 2019), The more loyal the consumer,
the higher the depth of the promotion, and the higher the profit for channel
The number of competitors: Our results indicate that brand managers should also
be mindful of the size of the product category in which they compete since the
negative effect of promotion is greater in categories with relatively few
competitors (DelVecchio et al., 2006).
According to the results of previous research, it is obvious that the effect of price
promotion is not necessarily positive or negative, but depends on the type of product,
discount rate, discount pattern and brand awareness.. etc. Bogomolova et al.'s (2017)
study has shown that companies lack a systematic evaluation of the goals of price
promotion activities. Most of them seem to be catching up, rather than carefully
planning, implementing and evaluating a series of actions. Thus, using price
promotions as a method cannot achieve companies’ objectives effectively.
This can be implied that companies should conduct a comprehensive study of
their brand and product characteristics to choose the most appropriate method to
achieve their goals. The adverse effect of price promotion on enterprises may be due
to insufficient understanding of marketing theory, rather than the method itself of
price promotion.
3. Literature Review- Omni-channel
Based on the perspectives of Dr. Heiner Evanschitsky and Dr. Sean Ennis, omnichannel has become the trend of retailing (e.g., Amazon go and Alibaba) to provide “a
seamless, effortless, and high-quality customer experience within and between
contact channels”. And mobile phones have become a marketing medium for omnichannel retailers to integrate online and offline shopping experience since the number
of people shop on mobile phone are increasing (O’Shea, 2019; PPRO, 2020).
However, even the market of online shopping is growing, the majority of sales are
contributed by physical stores (Statista, 2021). This means that if companies can catch
up with omni-channel trends and meet customers’ expectation, the advantages of
physical stores still exist. Since physical stores will not be replaced by online stores, the
following content will discuss the changes in the in-store marketing strategy (price
promotion) for attracting more shoppers and increasing sales in omni-channels.
Famous omni-channel practices in-store includes Amazon Go’s “Just Walk Out
Technology”(Tillman, 2021), Hema supermarkets (McKinnon, 2021) and Nike flagship
store (Adewusi, 2019).
3.1. Price promotion in Omni-channel
Omni-channel retail is different from multi-channel retail and cross-channel retail
in terms of integration degree and number of channels (retailer's point of view) and
channel integration level (customer's point of view) (Yrjölä et al., 2018).
There are two new in-store technologies in omni-channel that may change the
way businesses conduct price promotion compared with traditional retailing. First,
companies can offer personalized recommendations to customers by analyzing the
data collected from online apps on mobile phones. In this way, brands can learn
customer shopping behaviors and reach target groups more effectively by sharing
promotional products with people who are most likely to be interested in them.
Second, cheap prices are one of the reasons customers want to shop online.
Companies should assume that customers will use multiple channels to make their
purchase decision, such as comparing online prices while in-store (Yrjölä et al., 2018).
Therefore, when conducting price promotions, companies should ensure that in-store
prices are competitive with online prices.
4. Conclusion
In Summary, it is difficult to judge that the price promotions have either positive
effective or negative effective on brands. Some studies (Gauri et al., 2017; Lin, 2016;
Sigué, 2008) stated that price promotions benefit to their research object while other
researchers (Ailawadi et al., 2006; Briesch et al., 2002; DelVecchio et al., 2006; Kalwani
& Yim, 1992; Pauwels et al., 2007) think there is no positive impact on the brands they
However, when looking at the variables of price promotion, it can be found that
the result of price promotion was affected by many elements (e.g., the type of
products, the number of promoted products, the discount rate, the type of price
promotion, brand awareness, brand loyalty and the number of competitors). For
example, for brands that are not well-known or private brands, the effect on price
promotion could be detrimental to businesses (DelVecchio et al., 2006; Gauri et al.,
2017). Another study that examined how companies make the decision to do price
promotion founded that most businesses conduct price promotion without detailed
research on the market and their brands. They just act like copycats, seeing the success
of other brands then follow and ignoring the condition and situation of each company
are different.
Therefore, it can be assumed that the success and failure of price promotion
depend on if the method of price promotion conducted by companies is appropriate
for them. For example, for some start-up companies with lower brand awareness,
price promotion is not the marketing tool to adopt. Or the depth of discount rate and
the pattern of discount is not attractive for customers to purchase. All in all, it is
important for companies to have comprehensive research before adopting price
promotion to increase sales.
Regarding price promotion in omni-channel era, businesses can reach their target
group for the promoted products easier and offer more personalized
recommendations to customers based on data collected online. Another implication is
that as more and more customers compare online prices in stores, store managers
should ensure that promotional prices are attractive for customers to purchase instore.
Even though there are many researchers have studied the positive effects,
negative effects and variables of price promotion, whether the failure of price
promotion is due to the inappropriate marketing tools adopted are still unknown. This
is recommended to conduct a study about if price promotion can benefit companies
more after doing research and make an appropriate marketing plan. Since the number
of pricing strategies in omni-channel research is very small, it would be beneficial if
more research can be conducted in this area so that the company can develop better
price promotion strategies to increase sales.
5. Reference Lists
Adewusi, A. (2019, February 27). Nike’s New House of Innovation: The Future of
Ailawadi, K. L., Gedenk, K., Lutzky, C., & Neslin, S. A. (2007). Decomposition of the
Sales Impact of Promotion-Induced Stockpiling. Journal of Marketing
Research, 44(3), 450–467.
Ailawadi, K. L., Harlam, B. A., César, J., & Trounce, D. (2006). Promotion Profitability
for a Retailer: The Role of Promotion, Brand, Category, and Store
Characteristics. Journal of Marketing Research, 43(4), 518–535.
Bambauer-Sachse, S., & Massera, L. (2015). Interaction effects of different price
claims and contextual factors on consumers’ reference price adaptation after
exposure to a price promotion. Journal of Retailing and Consumer Services,
27, 63–73.
Bogomolova, S., Szabo, M., & Kennedy, R. (2017). Retailers’ and manufacturers’ pricepromotion decisions: Intuitive or evidence-based? Journal of Business
Research, 76, 189–200.
Briesch, R. A., Chintagunta, P. K., & Matzkin, R. L. (2002). Semiparametric Estimation
of Brand Choice Behavior. Journal of the American Statistical Association,
97(460), 973–982.
Büyükdağ, N., Soysal, A. N., & Ki̇tapci, O. (2020). The effect of specific discount
pattern in terms of price promotions on perceived price attractiveness and
purchase intention: An experimental research. Journal of Retailing and
Consumer Services, 55, 102112.
Chen, S.-F. S., Monroe, K. B., & Lou, Y.-C. (1998). The effects of framing price
promotion messages on consumers’ perceptions and purchase intentions.
Journal of Retailing, 74(3), 353–372.
DelVecchio, D., Henard, D. H., & Freling, T. H. (2006). The effect of sales promotion on
post-promotion brand preference: A meta-analysis. Journal of Retailing, 82(3),
Gauri, D. K., Ratchford, B., Pancras, J., & Talukdar, D. (2017). An Empirical Analysis of
the Impact of Promotional Discounts on Store Performance. Journal of
Retailing, 93(3), 283–303.
Guinn, J. (2017, September 7). Retail Pricing Strategies: The Top Approaches for Your
Business. Top Business Software Resources for Buyers - 2021 | Software
Kalwani, M. U., & Yim, C. K. (1992). Consumer Price and Promotion Expectations: An
Experimental Study. Journal of Marketing Research (JMR), 29(1), 90–100.
Kim, J. (2019). The impact of different price promotions on customer retention.
Journal of Retailing and Consumer Services, 46, 95–102.
Lien, C.-H., Wen, M.-J., Huang, L.-C., & Wu, K.-L. (2015). Online hotel booking: The
effects of brand image, price, trust and value on purchase intentions. Asia
Pacific Management Review, 20(4), 210–218.
Lin, Z. (2016). Price promotion with reference price effects in supply chain.
Transportation Research Part E: Logistics and Transportation Review, 85, 52–
McKinnon, T. (2021, April 13). The Future of Retail: 9 Ways Alibaba is Redefining
Retail Stores. Indigo9 Digital Inc.
O’Shea, D. (2019, March 14). 49% of retailers name in-store mobile experience a top
priority. Retail Dive.
Pauwels, K., Srinivasan, S., & Franses, P. H. (2007). When Do Price Thresholds Matter
in Retail Categories? Marketing Science, 26(1), 83–100.
PPRO. (2020, March 24). PPRO Payments & E-Commerce Report: North America.
PPRO | Local Payments. Worldwide.
Progressive Grocer. (2015, October 15). How Ineffective Promotions Are Dragging
Down Top CPG Brands. Progressive Grocer.
Raghubir, P., & Kim, C. (1999, May 1). When Do Price Promotions Affect Pretrial Brand
Evaluations? - Priya Raghubir, Kim Corfman, 1999.
Sigué, S. P. (2008). Consumer and Retailer Promotions: Who is Better Off? Journal of
Retailing, 84(4), 449–460.
Statista. (2021, April 21). E-commerce share of total retail sales. Statista.
Tillman, M. (2021, March 4). Amazon Go and Amazon Fresh: How the ‘Just walk out’
tech works.
Yrjölä, M., Spence, M. T., & Saarijärvi, H. (2018). Omni-channel retailing: Propositions,
examples and solutions. The International Review of Retail, Distribution and
Consumer Research, 28(3), 259–276.
Zhu, D. H., Zhang, Z. J., Chang, Y. P., & Liang, S. (2019). Good discounts earn good
reviews in return? Effects of price promotion on online restaurant reviews.
International Journal of Hospitality Management, 77, 178–186.